Morning Notes – Thursday December 13, 2018

Directional Bias For The Day:

  • S&P Futures are higher; moving sideways to down up since 4:00 PM on Wednesday
  • Odds are for a sideways to down day with choppiness and elevated volatility – watch for break above 2661.00 and break below 2648.00 for clarity
  • Key economic data due:
    • Unemployment Claims (206K vs. 226K est. and 233K prev.) at 8:30 AM
    • Import Prices (-1.6% vs. -1.0% est. and 0.5% prev.) at 8:30 AM

Markets Around The World

  • Markets in the East closed up
  • European markets are mostly higher – U.K and Switzerland are lower
  • Currencies:
    Up Down
    • EUR/USD
    • GBP/USD
    • USD/JPY
    • AUD/USD
    • NZD/USD
    • USD/CAD
    • Dollar index
    • USD/CHF
    • USD/INR
  • Commodities:
    Up Down
    • NatGas
    • Copper
    • Cocoa
    • Crude Oil
    • Gold
    • Silver
    • Platinum
    • Palladium
    • Sugar
    • Coffee
    • Cotton
  • Bonds
    • 10-yrs yield is at 2.913%, up from December 12 close of 2.906%;
    • 30-years is at 3.157%, up from 3.148%
    • 2-years yield is at 2.779%, up from 2.767%
    • The 10-Year-&-2-Year spread is at 0.139, up from 0.127

Key Levels:

  • Critical support levels for S&P 500 are 2636.19, 2621.3 and 2614.86
  • Critical resistance levels for S&P 500 are 2670.49, 2685.44 and 2703.22
  • Key levels for eMini futures: break above 2661.00 the high of 3:30 AM and break below 2648.25, the low of 7:00 AM

Pre-Open

  • On Wednesday, at 4:00 PM, S&P future (December contract) closed at 2651.50 and the index closed at 2651.07 – a spread of about +1.00 points; futures closed at 2652.50 for the day; the fair value is -1.00
  • Pre-NYSE session open, futures price action is to the upside – at 8:30 AM, S&P 500 futures were up by +6.00; Dow by +31; and NASDAQ by +34.25

Directional Bias Before Open

  • Weekly: Uptrend Under Pressure
  • Daily: In Correction
  • 120-Min: Side
  • 30-Min: Side
  • 15-Min: Side
  • 6-Min: Side-Down

The trend and patterns on various time frames for S&P 500 are:

Monthly
  • Under Pressure
  • October 2018 closed sharply lower; broke below previous four months’ lows; only third down month since October 2016; November was a harami spinning top near the lower end of October
  • Uptrend resumption since Feb 08, 2016 after a pull back of -15.2% – continues; higher highs and higher lows
Weekly:
  • The week ending on December 7 was a large red candle that engulfed the previous week’s large green candle;  small upper and lower shadows;
    • Stochastics (9,1, 3) and RSI (14) turned down again – %K crossed below %D and is  below 10; RSI is just above 40
    • During the week of October 22, Stochastics reached the lowest since the week of October 31, 2016 and RSI the lowest since the week on Jan 11, 2016
  • Last week was down -127.09 or -4.6% and ATR is 178.65
  • Last week’s pivot point=2684.93, R1=2748.33 R2=2863.58; S1=2569.68, S2=2506.28; R1/S1 pivot levels were breached;
  • A down week; third in last five weeks and sixth in last ten weeks
  • Broke above an ascending triangle but retraced back to its upper limit; 100% extension target is near 3070.00 level; retraced back to the lower trend line of triangle
  • Broke above a down sloping flag on April 24 2017;
    • flag-low was 2322.25 during 27-Mar-17 week; shorter flag-pole length is 317.19 and longer flag-pole length is 590.88;
    • 100% extension target of shorter flag-pole near 2639.44 and the 161.8% extension target near 2835.46 are achieved; the 261.8% extension target is near 3013.72
    • 61.8% extension target of longer flag-pole near 2687.41 is achieved; the 100% extension target near 2913.13 is achieved; the 161.8% extension target is near 3138.85
  • Broke above a down-sloping flag on November 14, 2016;
    • the flag low was 2083.79 during 31-Oct-16 week; the shorter flag-pole length is 202.13 and the longer flag-pole length is 383.71;
    • 261.8% extension target of shorter flag-pole near 2612.97 is achieved
    • the 161.8% extension target of longer flag-pole near 2704.63 is achieved; the 261.8% extension target is near 3088.34
  • Last swing low, 2532.69, was the low on February 5, 2018; Last swing high, 2940.91, was during the week of September 17, 2018;
  • Below 10-week EMA and 39-week SMA; below 89-week SMA (first since June 27, 2016)
  • Uptrend Under Pressure
Daily
  • A small red candle with no lower shadow and very large upper shadow – almost like a shooting star
    • %K crossing above %D from near 5 and bullish divergence; RSI-9 is also showing bullish divergence
    • Sequence of lower highs and lower lows since October 3 2018
  • Below 20-day EMA , 50-day EMA, below 100-day SMA and 200-day SMA
  • Uptrend Under Pressure
2-Hour (e-mini future)
  • Futures trying to stay above a downtrend line from December 3 high that they broke above at 8:00 Am on December 12; declining in steps i.e. lower highs and lower lows; a move above 2678.00 will break the sequence
  • RSI-9 declining since 10:00 AM on December 12
  • At/below 20-bar EMA, which is at/below EMA10 of EMA50
  • Bias: Side
30-Minute (e-mini future)
  • Moving mostly sideways higher since 6:00 AM on December 11;
  • RSI-9 is mostly between 40 and 65 since 11:30 AM on December 5; near 50
  • At/above 20-bar EMA, which is at/above EMA10 of EMA50
  • Bias: Side
15-Minute (e-mini future)
  • Bollinger Band (20, 2.0) is mostly moving sideways to down since 8:30 PM on Wednesday
  • The band was a bit narrow from 1:15 AM to 3:00 AM; expanding since then; price moving along the lower band
  • RSI-9 rising since 6:45 AM from near 35 after moving along the 40 for few hours
  • Stochastic (9, 1, 3): %K crossed above %D at 6:45 AM from below 20; above 90 and crossing below %D
  • Bias: Side

Previous Session

Major U.S. indices closed higher on Wednesday December 12. The volume was mixed. Dow Jones Industrial Average and Dow Jones Transportation Average traded in higher volume. Most indices closed below their open. Russell 2000 and Wilshire 5000 Total Market Index closed above their open.

From Briefing.com:

The S&P 500 rose 0.5% on Wednesday, although it gave up a good chunk of its gains in the afternoon after trading as high as 1.9% intraday. Optimism that trade relations between the U.S. and China were progressing fueled the rally effort, but selling would accelerate into the close, leaving the benchmark index at its session low.

The Dow Jones Industrial Average (+0.6%) and the Nasdaq Composite (+1.0%) also experienced some selling to finish near their session lows. The Russell 2000 (+1.1%) led all the indices, but also finished off its highs for the day.

[…]

The consumer discretionary (+1.1%), materials (+1.0%), health care (+0.9%), communication services (+0.8%), and information technology (+0.8%) sectors led today’s gains.

Chip stocks, in particular, put in another strong showing with the Philadelphia Semiconductor Index rising 1.5%. The group’s recent outperformance has helped contribute to the tech sector’s leadership position this week (+2.3%).

The defensive-oriented consumer staples (-0.2%), utilities (-0.6%), and real estate (-1.9%) sectors, meanwhile, finished in the red as the market adopted more of a risk-on tone.

Strikingly, the Dow Jones Transportation Average, which is a key driver of economic sentiment, was also unable to find steam.

[…]

Overseas, attention turned to the UK, where Prime Minister Theresa May won a “no confidence” vote from her own Conservative Party with respect to her leadership. The vote came amid the heightened uncertainty surrounding the UK’s Brexit plan. The British pound rose 1.1% to 1.2617 against the dollar, which also benefited from the U.S. Dollar Index losing 0.3% to 97.08.

Reviewing Wednesday’s economic data, which included the Consumer Price Index for November and the weekly MBA Mortgage Applications Index:

…]

The key takeaway is that consumer inflation trends are not running away from the Federal Reserve’s longer-run target, which should feed into the market’s growing belief that the Federal Reserve has some data-based scope to take it easy after a December rate hike.

[…]

  • S&P 500 Sectors
Sector Daily Trend (Visual) Relative Strength (Last Month – November) Relative Strength (Current) %K vs. %D
Consumer Discretionary Down SPY XLY Below
Consumer Staples Under Pressure XLP XLP Cross-Under
Energy Down SPY SPY Below
Materials Side XLB XLB Cross-Under
Industrials Down XLI (Cross – Over) XLI Below
Finance Down XLF XLF Cross-Under
Technology Down SPY SPY Below
Utility Under Pressure XLU XLU Above
Heath Care Under Pressure XLV (Cross – Over) XLV Cross-Under
Real Estate Up XLRE XLRE Cross-Under
Telecom Down SPY SPY Below
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